The Role of Risk and Information for International Capital Flows: New Evidence from the SDDS

International Monetary Fund Working Paper No. 12/242

44 Pages Posted: 16 Oct 2012

See all articles by Yuko Hashimoto

Yuko Hashimoto

International Monetary Fund (IMF)

Konstantin M. Wacker

University of Groningen - Faculty of Economics and Business

Multiple version iconThere are 2 versions of this paper

Date Written: October 16, 2012

Abstract

In this paper we investigate whether better information about the macroeconomic environment of an economy has a positive impact on its capital inflows, namely portfolio and foreign direct investment (FDI). The purpose of our study is to explicitly quantify information asymmetries by compliance with the IMF's Special Data Dissemination Standard (SDDS). For FDI, we find statistically significant and robust support for this hypothesis: SDDS subscription increased inflows by an economically relevant magnitude of about 60 percent. We also find evidence of aversion against political and macroeconomic risk as determinants of portfolio and FDI flows and use a non-parametric test for spatial correlation in the residual of capital flows.

Keywords: determinants of capital flows, information, panel data, risk, SDDS, IMF, FDI, portfolio investment, spatial econometrics

JEL Classification: C33, F21, G14

Suggested Citation

Hashimoto, Yuko and Wacker, Konstantin M., The Role of Risk and Information for International Capital Flows: New Evidence from the SDDS (October 16, 2012). International Monetary Fund Working Paper No. 12/242, Available at SSRN: https://ssrn.com/abstract=2162418 or http://dx.doi.org/10.2139/ssrn.2162418

Yuko Hashimoto

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Konstantin M. Wacker (Contact Author)

University of Groningen - Faculty of Economics and Business ( email )

Postbus 72
9700 AB Groningen
Netherlands

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